Incorporating is one of the best ways a business owner can protect his or her personal assets. Most people choose to incorporate solely for this reason, but there are other advantages as well. For example, the corporate business structure allows you to save money in taxes, provides greater business flexibility and lets you more easily raise capital.
However, if you own or operate a very small business, or perhaps you are just starting a business, don't rush to incorporate. Take the time to consider the benefits and the costs. Make sure that you will benefit from incorporating your business.
Benefits when you incorporate a business
First Benefit of Incorporating a Business: Minimizing Liability
A corporation is defined as a legal entity or structure created under the authority of the laws of a state, consisting of a person or group of persons who become shareholders. The entity's existence is considered separate and distinct from that of its members.
If you operate your business as an unincorporated sole proprietorship or as a partnership, your ownership in the business means you're liable for all of the business's debts. In a sense, any promise the business makes (or that your business partner makes, if you're operating as a partnership) burdens you with liability.
After incorporating, in comparison, you are not liable for the debts of the business merely by reason of your ownership. If the corporation promises some vendor payment, agrees to repay some customer, or owes money to an employee, you're not personally liable merely because you own shares in the corporation.
Second Benefit of Incorporating a Business: Minimizing Income and Payroll Taxes
Corporations also deliver a second, big benefit to small business owners: corporations can save their owners federal and state income taxes as well as federal payroll taxes.
C corporations can provide their employees, including shareholder-employees with rich, tax-free fringe benefits. In certain circumstances, then, a C corporation allows a business owner to provide him- or herself and his or her family with tax-free benefits such as healthcare, life insurance, and housing.
S corporations allow shareholders to avoid the corporate income tax on business profits and may even allow shareholder-employees to reduce the payroll taxes (Social Security and Medicare Taxes).
Click here to learn the more about the advantages and disadvantages of incorporating to pros and cons of a particular business structure.
We offer complete filing support as a MyCorporation Affiliate which includes, drafting of your articles of incorporation, delivery and filing with government offices, the preparation of your tax forms for all entity types, corporate records management, annual reports and meeting minutes as well as corporate kits, seals and more.
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